A Message from our Newsletter Sponsor,
Andrea Chirich:
Do Borrowers with Lower Credit Scores Get Better Rates?
Have you heard Home Buyers with bad credit and little money down are getting better deals on interest rates than well qualified Buyers? I’ve had questions from clients about this change and decided this is a great April topic! If you’ve heard changes in loan costs are creating better deals for buyers with lower credit scores and less down payment, it is regarding Loan Level Price Adjusters and that is only part of the story. Here we go!
The Loan Level Price Adjustment is a fee that lenders pay to Fannie Mae or Freddie Mac to purchase a loan. This fee is based on the loan's risk level, with higher risk loans being charged a
higher fee. The fee is then passed on to the borrower in the form of a higher interest rate or higher closing costs.
In February the Federal Housing Financing Authority (FHFA) announced changes to the Loan Level Price Adjusters (LLPA) for conventional loans, loans purchased through Fannie Mae or
Freddie Mac. These changes went into effect in February and were designed to help more Home Buyers afford a home purchase. The changes lowered the LLPA fee slightly for lower credit score and lower down payment buyers. To help offset the costs of these loans, the LLPA fee was raised slightly on Fannie Mae and Freddie Mac loans to buyers with higher credit scores and higher down payments. The LLPA fees remain higher on loans to Buyers with lower credit
scores and less than 20% down on their home, compared to Buyers with higher credit scores and 20% down or more, but the gap between the two was narrowed slightly. No scenario
exists where an individual with a lower credit score and down payment will get a better deal on an interest rate than a buyer with a higher credit score and more down payment.
This is not new. The most recent changes went into effect in February. Those of us working with Buyers and Sellers to purchase homes have noticed little to no change in loan interest rates based on these LLPA changes. LLPA levels are changed from time to time anyway, so making tweaks is not a new situation either. These changes may make it possible for some borrowers to qualify for a conventional loan or may make their loan less expensive. However,
it's important to note that these changes only apply to conventional loans purchased by Fannie Mae or Freddie Mac, and not to FHA or VA loans.
As a realtor, it's important to me to help consumers understand the LLPA and its recent changes, and to help them explore all their financing options to find the best loan for their needs and budget. If you have any questions or need assistance navigating the complex world of mortgage financing, please don't hesitate to reach out to me for help. Simply click on the link below and I am happy to answer any of your questions regarding real estate or mortgages.
I am a resource for you for all things real estate!
| 
